Defined benefit (DB) schemes must take time to assess their endgame plans against the backdrop of the industry and legislative changes over the past few years, Hymans Robertson has warned.

The consultancy’s State of the Nation paper, part of its Excellence in Endgames hub, explores the changes to the pensions landscape for DB schemes and aims to provide guidance for schemes assessing their endgame plans.

Hymans Robertson explained that as funding levels have improved, the DB market has undergone a “vast and significant” change in the past few years.

These changes include the Pension Schemes Bill, consultations on DB surplus, evolving guidance from The Pensions Regulator (TPR), the new DB Funding Code, as well as a change of government, which all provide schemes with things to consider.

Against this backdrop, the firm is increasingly seeing a “strong” trend of DB schemes reassessing their endgame strategy. 

The report also noted that with the progression of the Pensions Schemes Bill through parliament, the new legislation is set to make run-on and surplus sharing between sponsors and scheme members easier. 

However, the paper included a survey which asked if the trustees/sponsor's scheme was running on, what do you see as the biggest risks in strategy, to which 51.6 per cent said regulation.

“With the long-awaited Pension Schemes Bill published last month, and the second phase of the government’s Pensions Review launched earlier this week, there appears to be no slowdown of innovation, choice and flexibility,” Hymans Robertson head of DB scheme actuary services, Laura McLaren, said.

McLaren highlighted the “incredible speed” at which the DB landscape has been transformed in the past few years, which has seen the market now offer a range of options that schemes can work towards.

In particular, she noted the “growing movement” for schemes to think more purposefully about surpluses as they become a reality, with rising interest rates and better than expected investment performance.

McLaren acknowledged that with all these factors at play, schemes are now reassessing their endgame strategies and re-evaluating their timeframes and objectives.

Despite, as McLaren explained, the speed of change is to be welcomed, she emphasised the importance of sponsors and trustees taking the time to work together to think about the impact these changes will have on their own scheme, aims and goals.

The firm acknowledged that its clear buyout is no longer the only endgame choice, as there are now a growing number of available strategies for well-funded schemes.

In light of this, the consultancy argued that trustees and sponsors need to take action to help navigate the variety of available options, with the paper outlining steps for DB schemes to take to help make the process straightforward.

The firm suggested trustees and sponsors should start engaging on an endgame strategy early and explore the range of available options as well as working together and have a shared vision upfront on the overarching principles.

It also proposed that the impact of the Pension Schemes Bill should be reviewed by trustees and sponsors, including considering how this will shape strategic aims.

“While the plethora of changes are to be welcomed, there are now an increasing range of issues that schemes must navigate,” McLaren continued.

“For most schemes, the final legislation will be the clear deciding factor fleshing out the decision-making required, although proactive thinking about how to steer a scheme should be encouraged.”

Hymans Robertson said it is also important for schemes to monitor regulatory and market developments.  

Commenting on the importance of reviewing all options, McLaren said that although it’s “still early” to predict how these changes will impact DB schemes and the market in the longer term, it is “interesting to see”, even in the short term, the impact the changes have had on the DB market.

She stated that within the insurance space, the industry has seen the market innovate to respond to growing demand.

“Similarly, the market for alternative solutions continues to develop and we are pleased to see the dial move forward around superfunds as part of the Pension Scheme Bill,” she said.

However, she stressed the importance of remembering that there is “no one size fits all solution” – the optimal endgame approach will very much depend on a scheme’s circumstances.

She concluded that the landscape is continually evolving, and Hymans Robertson would support early planning to help schemes seize opportunities as they arise.

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